Industry experts like to promote the idea that employees are the major force behind a firm’s competitive advantage. Yet the reality is that most financial advisors are still facing a shortage of critical skills. Although investment advisors are making more efforts to attract and retain employees and have become increasingly intuitive about employee needs, the pressure on investment advisory businesses to find and retain talent remains intense. Many financial professionals compound the problem by failing to make talent management a strategic priority for their firm. This is in spite of the fact that one third (33%) of advisors surveyed named staff development and retention as an area that needs improvement.
In 2007, advisors expanded their staff levels–the number of administrative staff increased to three per average RIA firm compared to two in 2006. In 2008, almost 46% of advisors surveyed (mostly small firms with less turnover and smaller staffing needs) said they do not plan to change their firms’ organizational structures and do not feel that they need to recruit new employees. More than half of advisors (52%) surveyed are planning to hire one additional staff member, while only 2% of advisors are planning to reduce the number of employees.
Providing Career Growth Opportunities
Developing solid processes to help employees work efficiently and effectively is one of the biggest challenges advisors face. And 2007 found more advisors providing the training and tools needed to allow employees to have a stimulating career path. The intention? To address the shortage of critical skills, increase retention rates, and improve employee motivation. Advisors boosted their employees’ industry knowledge by sending them to seminars (54%), funding continuing education courses (49%), and providing tuition reimbursement (46%). Only about a fifth (21%) of advisors did nothing to advance employee career growth–compared to 32% in 2006.
Offering Compensation Plans
In order to reward and motivate professional employees, some investment advisors offer incentive packages that include a bonus based on the firm’s gross revenue (24%) or profit margin (22%). Awarding revenue-based bonuses creates a team environment where everyone gets rewarded for their contribution to growth–perhaps the ultimate motivator for many businesses. Half of the advisors surveyed don’t have an incentive plan now, but 17% of those without a plan said they intend to add one within the next year.
Investing in Employees
Direct turnover costs per employee are about 25%-30% of an individual employee’s salary/benefits package, according to market research firm InsightLink Communications–far more than the cost of training a current employee. So it’s worth investing your money and time to train your current staff.
To help your employees understand what opportunities are available to them, create job descriptions for each position at your firm and list the competencies required for each slot. Then train to retain. That is, show employees how to advance their careers, and help them get there by providing the training they need. This isn’t a completely altruistic endeavor–employees who feel that you have invested in them are more dedicated to your firm.
Many advisors recognize the value of providing feedback to staff members about job effectiveness and career guidance. Most advisors (80%) not only regularly give informal feedback on performance, but also conduct formal employee performance evaluations at least once a year.
If you already give written performance reviews annually, you’re ahead of the game. The next step is to include concrete goals so your employees are aware of expectations. Then check in with employees more often–as frequently as quarterly–in order to track performance progress and help them reach goals. This will enable your employees to advance on their career tracks.
With more dedicated employees, an increase of high-level skills in-house and a higher retention rate, your firm will have a more competitive advantage.
Maya Ivanova is a market research manager with Rydex AdvisorBenchmarking.com. She can be reached at firstname.lastname@example.org.
About Rydex AdvisorBenchmarking, Inc., an affiliate of Rydex Investments
AdvisorBenchmarking is a free practice management program designed to help RIAs better manage and grow their firms. The analysis on Rydex AdvisorBenchmarking.com is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general, and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex Investments or any of its affiliates.